draw ‘til you’re soreWelcome to the bog of Jessica Amber. Herein you’ll find my life, whatever Irandom stuff ’m getting up to. It’s usually creative.
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15/8/2018 2 Comments Tax With Me: Part 2If you haven't already read part 1 of this series, find it here: https://jess-ambers-blog.weebly.com/home/tax-with-me-doing-an-australian-tax-return-in-2018 Previously on...So when I last left off, I was filling in details about my personal service income. I'd just marked that no, I'm not liable for the cost of fixing defects in my work. Let's ContinueWas my income generated by a business structure?Your income is more likely to be generated by a business structure if:
This definition makes it very clear that I do NOT operate as a business structure. So I will be selecting No. Results Test Complete! Next, 80% RuleThe next section I have to fill in is titled 80% Rule. I don't know what that is right off the bat. To calculate this, I added together all my commission dollars on one cell of a spreadsheet. Then, in another cell, I found the percentage earned from one client (in this case, Winnines Jamaican) through the formula =SUM[cells with earnings from winnines]/[cell with total earnings from all commissions]*100. This ended up equalling 66%, so I'm not meeting the question's 80% threshold, and therefore will check the No button. Unrelated Clients TestHow are labour hire firms treated for the unrelated clients test?In a labour hire firm arrangement, the client of the labour hire firm is the relevant client for the purposes of the unrelated clients test. For example, if you are contracted with a labour hire firm to provide services to:
You do not pass the unrelated clients test if you source all your work through arrangements such as a labour hire firm. I don't think I pass this one because the work with Winnies came from being the boyfriend of the chef there. I think that counts as being 'associated with me'. But it's not 100% clear. This ATO webpage doesn't add much more clarity. A PDF from Saward Dawson (direct link) adds this to the info on the unrelated clients test: However, you must obtain these clients through direct means such as advertising or tendering. Quill Group state the matter in this way: Unrelated clients test (is your Personal Service Income from two or more clients who are not connected and did you get the work by making offers to the public) If the 'making offers to the public' is what determines whether they are associated with me or not, then I don't qualfy, as I didn't get the Winnies jobs through public advertising, I got it from my boyfriend putting in a good word. Accountants Desktop has a PDF (direct link) explaining things thusly: Unrelated clients are not related to each other, or to this individual, the personal services entity or associates of the individual or entity. The personal services work must have been obtained as a direct result of making offers to the public (for example, by advertising or word of mouth). Do not count clients obtained through a labour hire firm or placement agency. Now I am confused again because of the use of word-of-mouth. MediqFinancial gives a tiny bit more context, in the scenario of medical financial services: Due to the number of patients seen by medical professionals there is no question that the unrelated clients test is satisfied. A More Personalised Answer - Live Chat with MichaelI think my confusion here warrants the intervening of a specialist. The MyTax website offers a Live Chat button on the right side of the screen. I am going to do that now and try to find the information I need Me: In regards to the question "Did you earn personal services income from two or more clients who were not associated with you or each other?", can you tell me what it means if a client is 'associated with me'? Michael: I'll give you some details to look at. https://www.ato.gov.au/business/personal-services-income/working-out-if-the-psi-rules-apply/step-4--the-remaining-tests/unrelated-clients-test/ Associates of the business or associates in general, I'll get that definition. Michael: i guess, if you have anyone who controls your business, or you control theirs, or vice versa, or in concert, you could be deemed to be associated. Is that the case for you and your client? Me: It is not a control relationship no. The relationship is, I am an artist, and my boyfrined works at a restaurant. He told the restaurant about me, and they commissioned me to make some advertising materials. So I'm right in thinking that doesn't count as an 'association' between me and the restaurant client? Michael: nothing to do your income uless he influences your business activities, is what I'm asking. [sic] Michael: does he influence your business? Me: No Michael: so, your clients, do you have two or more clients that don't influence your business? Me: Yes Michael: now, do you make your business available to members of the public and not strictly to certain clients/entities? Me: Yes Michael: if that is the case, that would suggest that the PSI rules don't apply to you, although you receive PSI. Me: Okay Michael: so, now, hopefully you have recorded your responses as you will need these. if the rules don't apply, (passed any of the tests) even though it is PSI, you enter through "business income or loss" section under "Business/sole trader income or loss" you then answer the questions in accordance to what you selected when going though the tests Me: Yes I recorded my answers. Thank you for your help Michael: no problem A nice discovery is that, at the conclusion of a chat session, you can save a transcript, which is in PDF format, of the conversation. The conclusion, the long-awaited answer, is that the thing I have with Winnie's Jamaican is NOT an association. Which means that for the question "Did you earn personal services income from two or more clients who were not associated with you or each other?", I will answer YES. Obtaining ClientsSelecting Yes brought up a new set of checkboxes.
I know that at least word of mouth and labour hire firm apply to me. I have several website actually, and they at least make some mention of the fact I am available for work. I did use a public Facebook page to advertise my work and hopefully obtain clients. As for public tender, I don't know what that it. Let's find the definition. Public Tender: Another word for open tender. A bidding process that is open to all qualified bidders and where the sealed bids are opened in public for scrutiny and are chosen on the basis of price and quality. [www.businessdictionary.com/definition/open-tender.html] That does not apply to me (though it sounds familiar to the labour hire setup of Airtasker, labour hire is already an option on this list). Example – Is my industry "very small and specialised"?Adrian is an engineer. He specialises in the offshore undersea gas pipeline industry, where he typically performs tasks such as the design and oversight of the fabrication and installation of offshore pipelines. There are only seven companies in this particular industry, and Adrian’s skills are not suitable for other tasks or clients outside this industry. Adrian would answer ‘yes’ to this question because his industry and pool of potential clients is very small (in this case, the seven companies). My artistic skills are relevant to a broad market and are very transferrable so my answer is No. Employment TestNew section, hooray! Business Premesis TestThis is the final section of the PSI decision tool. Thank goodness. What are business premises?
Business premises includes land or buildings (or any part of such land or buildings — for example, a room). The premises must be suitable for carrying on your business.
To have business premises, you must have a right to occupy the premises, such as ownership, lease or a licence. You are not required to have the same business premises during the income year. You can change business premises during the year, provided that you have such premises at all relevant times during the year ExampleSandra is a personal trainer who works as a sole trader. For several years, she conducted personal training sessions in a small room she leased in an office building. As the lease was due to expire on 31 December, and she wished to find a larger room to conduct her sessions, she negotiated the lease of a room in a different building. That lease did not commence, however, until 1 February.
Sandra continued to earn personal services income from her personal training business in January by travelling to, and conducting sessions from, the homes of her clients. Sandra would answer ‘no’ to this question, because she earned personal services income in January but did not have business premises during that month. However, if Sandra did not conduct any personal training activities in January, she would answer ‘yes’ to this question. In this case, no personal services income was earned when Sandra did not have any business premises. Were my business premises mainly used to conduct activities which generated my personal services income?If your business premises were used for activities that generated personal services income and for other activities, this requirement is more likely to be satisfied if:
There are many more examples on the website, but I think this is enough for my purposes. I work from home, and not in a dedicated office, so I would answer No. Drumroll Please...The PSI rules apply to me. Which apparently means...
Summary of responses
Name of business <<redacted by me>> Was the business carried on through a company, partnership or trust (including a Self-Managed Super Fund)? No Did all of your business income come from a labour hire firm? No How did you earn your income (select all that apply)? Providing personal skills, knowledge, or efforts (eg: professional services and trades) Sale of goods You have said your income relates to the sale of goods. In every transaction, was more than 50% of the income from the sale of goods? No Select the type of payment which made up 75% or more of your personal services income An agreed price paid for completing each job, item or activity (can include progress payments) For at least 75% of your personal services income, were you required to provide the tools and equipment needed to do your work? Yes For at least 75% of your personal services income, were you liable for the cost of fixing any defects in your work? No Did you provide services as an agent earning commissions? No Was your income generated by a business structure? No Did any one of your clients (including their associates) provide 80% or more of your personal services income? No Did you earn personal services income from two or more clients who were not associated with you or each other? Yes During the income year, which of the following methods did you use to obtain clients (select all that apply)? Advertising Your own website Labour hire firm or employment agency Word of mouth; referrals; personal contacts in the industry Were the 2 or more unassociated clients from which you earned personal services income obtained through your own website or advertising? No Are your skills and expertise relevant to only a very small and specialised industry? No Did you have an apprentice working for you for at least half the income year? No Did you use others (e.g. employees or subcontractors) to perform work for you? No Did you have business premises on each day you conducted activities to earn personal services income? No Formally submit this result for future reference Yes Our commitment to you We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations. If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take. Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information. If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice. Copyright notice© Australian Taxation Office for the Commonwealth of Australia You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). At this stage, I've been working almost 7 hours on this tex stuff, including making this blog post, so I decided to finally take a break. After selecting the Save to MyTax button on the PSI screen, I clicked the Save and Exit button on the right side of the screen. Stay tuned for Prt 3, where I'll finally finish the 3rd segment of the tax return.
Until next time, xx Jess
2 Comments
25/10/2018 05:49:50 pm
This is such a great resource that you are providing and you give it away for free. I love seeing websites that understand the value of providing a quality resource for free.
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Joshua Willis
24/10/2022 06:29:10 am
This has been so very helpful to me, thankyou so much for taking the time to write this blog post and research everything. I had exactly the same result as you with my cooking/cleaning business. I don't know why it has to be so complicated for people like us who do freelance work. I don't even earn that much money, but like you said I don't want to fill out the damn forms incorrectly. I'm worried that I'll get a fine for ticking a box about something I don't even understand. Very frustrating and confusing. It also never made sense to me that they already have the ability to figure out how much tax I should pay so why do I even have to bother filling out this tax return...
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